Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-21849
METROPOLIS REALTY TRUST, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 13-3910684
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
c/o Victor Capital Group, L.P.
410 Park Avenue
14th Floor
New York, New York 10022
---------------------------------
(Address of principal executive offices)
(Zip Code)
(212) 655-0220
---------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
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<PAGE>
As of November 1, 2000, there were 12,997,646 shares of the registrant's Common
Stock issued and outstanding, of which 8,061,586 shares were shares of Class A
Common Stock and 4,936,060 shares were shares of Class B Common Stock.
As of November 1, 2000, of the registrant's 12,997,646 shares of Common Stock
issued and outstanding, approximately 9,722,489 shares are held by affiliates of
the registrant and approximately 3,275,157 of the registrant's shares are held
by non-affiliates of the registrant. The registrant's Common Stock is not listed
on any exchange; the registrant does not intend to list its Common Stock on any
exchange in the near term; there is not currently a public market for the
registrant's Common Stock; and there can be no assurance that an active trading
market for the registrant's Common Stock will develop or be sustained.
<PAGE>
METROPOLIS REALTY TRUST, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE
------------------------------ ----
ITEM 1. Financial Statements..................................................1
The accompanying unaudited, interim financial statements have been prepared
in accordance with the instructions to Form 10-Q. In the opinion of
management, all adjustments necessary for a fair presentation have been
included.
Consolidated Balance Sheets as of September 30, 2000
(unaudited) and December 31, 1999 (audited)...........................1
Consolidated Statements of Income (Loss) for the quarters
and nine months ended September 30, 2000 and 1999 (unaudited).........2
Consolidated Statements of Cash Flows for the nine
months ended September 30, 2000 and 1999 (unaudited)..................3
Notes to Consolidated Financial Statements (unaudited)................4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................9
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk............12
PART II - OTHER INFORMATION...................................................12
---------------------------
ITEM 1. Legal Proceedings....................................................12
ITEM 2. Changes in Securities................................................12
ITEM 3. Defaults Upon Senior Securities......................................12
ITEM 4. Submission of Matters to a Vote of Security Holders..................12
ITEM 5. Other Information....................................................12
ITEM 6. Exhibits and Reports on Form 8-K.....................................12
SIGNATURES...................................................................S-1
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i
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
METROPOLIS REALTY TRUST, INC.
AND SUBSIDIARIES
<S> <C> <C>
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
September 30, 2000 December 31, 1999
(Unaudited) (Audited)
----------- ---------
ASSETS
Rental property - net of accumulated depreciation of $369,299 $374,282
$34,929 and $27,316, respectively
Cash and cash equivalents 15,091 9,113
Escrow deposits 6,938 3,179
Tenant security deposits 227 226
Due from tenants - net of allowance for doubtful accounts 2,250 2,446
of $3,651 and $3,651, respectively
Deferred financing costs - net of amortization of 9,478 12,616
$3,438 and $207, respectively
Real estate tax refunds 3,175 3,175
Deferred rent receivable 48,541 46,110
Prepaid real estate taxes 4,459 8,658
Deferred leasing costs, net of amortization of 16,262 14,864
$2,278 and $1,232, respectively
Other assets 394 607
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TOTAL ASSETS $476,114 $475,276
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Mortgage notes $425,000 $425,000
Accounts payable and accrued expenses 10,462 8,700
Dividends payable 1,950 --
Tenants' security deposits and unearned revenue 2,171 1,462
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Total Liabilities 439,583 435,162
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Subordinated Minority Interest 14,409 14,409
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Stockholders' Equity
Common Stock - $10 par value
(Class A - outstanding - 8,061,586 and 8,059,586
shares, respectively
Class B - outstanding - 4,936,060 and 4,936,060
shares, respectively)
129,976 129,956
Paid-in capital 175,844 175,844
Retained deficit (283,698) (280,095)
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Total Stockholders' Equity 22,122 25,705
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $476,114 $475,276
======== =========
</TABLE>
See notes to consolidated financial statements.
1
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
(In thousands, except share amounts)
<S> <C> <C>
Quarter Ended September Nine Months Ended
30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
REVENUES:
Base rental income $21,350 $31,040 $64,018 $86,152
Operating escalation income 410 2,054 1,936 9,780
Lease termination income -- -- -- 25,855
Miscellaneous income 735 537 2,193 3,803
--------- --------- -------- --------
Total revenues 22,495 33,631 68,147 125,590
OPERATING EXPENSES:
Real estate taxes 4,461 7,320 13,125 21,467
Operating and maintenance 964 2,093 3,549 5,493
Utilities 3,056 2,674 6,218 5,588
Payroll 773 1,124 2,289 3,350
Management fees 457 618 1,315 1,683
Professional fees 68 488 612 893
General and administrative 91 285 239 536
Depreciation and amortization 2,892 4,321 8,660 12,023
-------- -------- -------- --------
Total operating expenses 12,762 18,923 36,007 51,033
OTHER ITEMS:
Write-off of note receivable -- (1,088) -- (1,088)
Interest income 294 703 844 2,290
Interest expense (10,342) (8,791) (30,707) (26,328)
-------- ---------- -------- --------
Total other items (10,048) (9,176) (29,863) (25,126)
-------- ---------- -------- --------
NET INCOME (LOSS) ($315) $5,532 $2,277 $49,431
======== ========== ======== ========
NET INCOME (LOSS) PER COMMON SHARE:
Net Income (Loss) ($.02) $.43 $.18 $3.81
======== ======== ======== ========
Weighted Average Common Shares Outstanding 12,997,646 12,970,646 12,997,646 12,970,646
========== ========== ========== ==========
NET INCOME (LOSS) PER COMMON SHARE (assuming
dilution):
Net Income (Loss) ($.02) $.43 $.18 $3.80
========== ========== ========== ==========
Weighted Average Common Shares Outstanding
(including 3,000 and 28,000 shares of Common Stock
issuable upon the exercise of outstanding options
as of September 30, 2000 and 1999, respectively) 13,000,646 12,998,646 13,000,646 12,998,646
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
2
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<S> <C> <C>
Nine Months Ended September 30,
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,277 $49,431
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,890 13,662
Amortization of discount - notes receivable -- (353)
Write-off of note receivable -- 1,088
Change in:
Increase in escrow deposits (3,760) (4,912)
Decrease in due from tenants 196 176
Decrease in prepaid expenses and other assets 4,406 6,877
Increase in deferred rent receivable (2,431) (6,093)
Increase in accounts payable and accrued expenses 1,762 1,357
Increase/(Decrease) in unearned revenue 709 (1,624)
Decrease in tenant security deposits -- 64
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Net cash provided by operating activities 15,049 59,673
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to building and equipment (2,630) (9,680)
Additions to leasing costs (2,444) (13,902)
Collections on notes receivable 5 246
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Net cash used in investing activities (5,069) (23,336)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on mortgage notes -- (5,625)
Dividends paid (3,900) (12,970)
Other (102) --
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Net cash used in financing activities (4,002) (18,595)
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INCREASE IN CASH AND CASH EQUIVALENTS 5,978 17,742
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
9,113 25,358
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CASH AND CASH EQUIVALENTS, END OF PERIOD $15,091 $43,100
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during period $24,565 $24,689
======= =======
Dividends declared $ 5,849 $19,455
======== =======
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except share information)
1. BACKGROUND, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Organization - Metropolis Realty Trust, Inc., a Maryland corporation
("Metropolis" or the "Company"), was formed on May 13, 1996 to
facilitate the consummation of the Second Amended Joint Plan of
Reorganization of 237 Park Avenue Associates, L.L.C. ("237 LLC") and
1290 Associates, L.L.C. ("1290 LLC" and, together with 237 LLC, the
"Predecessors"), dated September 20, 1996 (the "Plan"). Pursuant to the
Plan, on October 10, 1996, the date operations commenced ("Effective
Date"), the Company acquired the interests of 237 LLC and 1290 LLC in
the properties located at 237 Park Avenue (the "237 Property") and 1290
Avenue of the Americas (the "1290 Property," and together with the 237
Property, the "Properties").
On November 22, 1999, the Company sold all of its interests in the 237
Property. As of September 30, 2000, the Company owns a 94.05%
partnership interest, as limited partner, in 1290 Partners, L.P., a
Delaware limited partnership (the "1290 Property Owning Partnership").
The 1290 Property Owning Partnership owns the 1290 Property. A
wholly-owned subsidiary of the Company ("1290 GP Corp.") owns a 1%
interest, as general partner, in the 1290 Property Owning Partnership.
The remaining 4.95% interest in the 1290 Property Owning Partnership is
owned by 237/1290 Upper Tier Associates, L.P., a Delaware limited
partnership (the "Upper Tier LP"). The 4.95% interest is subordinated
to the 94.05% partnership interest of the Company with respect to
certain priority distributions from the 1290 Property Owning
Partnership. The Upper Tier LP and the 1290 Property Owning Partnership
are hereinafter referred to, collectively, as the "Partnerships."
Basis of Presentation - The consolidated balance sheets include
Metropolis and each of the entities through which Metropolis indirectly
owns the 1290 Property. The presentation of the consolidated balance
sheets requires estimates and assumptions that affect the reported
amounts of assets and liabilities at the balance sheet date. Actual
results could differ from those estimates. Certain 1999 amounts on the
consolidated statements of income have been reclassified to conform
with the 2000 presentation.
Rental Property - Rental property is carried at cost, net of
accumulated depreciation and amortization, and includes land, building,
tenant improvements and building improvements. Land is carried at
$63,470 and $63,500 as of September 30, 2000 and 1999, respectively.
Building, tenant improvements and building improvements are carried at
$340,758 and $335,769 as of September 30, 2000 and 1999, respectively.
If a property is determined to be impaired, it must be written down to
its estimated fair value. Fair value is defined as the amount for which
the asset could be bought or sold in a current transaction, that is,
other than a forced or liquidation sale.
Cash and Cash Equivalents - Cash and cash equivalents includes
investments purchased with an original maturity of three months or
less.
Depreciation and Amortization - Building and building improvements are
depreciated over their useful lives of 40 years. Furniture and fixtures
are depreciated over their useful lives, ranging from 5 to 7 years.
Tenant improvements are amortized on a straight-line basis over the
terms of the respective leases.
Deferred Charges - Deferred financing costs, which include fees and
costs incurred to obtain long-term financing, are being amortized over
the term of the related loan, and such amortization is included in
interest expense in the accompanying consolidated statements of income.
Direct costs related to leasing are amortized over the related lease
term.
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Rental Income - Rental income is recognized on a straight-line basis
over the terms of the related leases. Differences between actual base
amounts due from tenants leases and the straight-line basis are
included in deferred rent receivable.
Escrow Deposits - Escrow deposits include reserves for certain claims
made in conjunction with the Plan and escrow deposits for tenant
improvements, leasing commissions, insurance and real estate taxes.
Income Taxes - The Company qualifies as a REIT under the Internal
Revenue Code, as amended, and will generally not be taxed at the
corporate level on income it currently distributes to its stockholders
so long as it, among other things, distributes at least 95% of its REIT
taxable income.
New Accounting Pronouncements - During 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities",
which provides that all derivative instruments should be recognized as
either assets or liabilities depending on the rights and obligations
under the contract and that all derivative instruments be measured at
fair value. This pronouncement is required to be adopted by January 1,
2001. Management does not believe that the implementation of this
pronouncement will have an adverse impact on the Company's financial
statements.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements." This bulletin summarizes certain of the staff's
views in applying generally accepted accounting principles to revenue
recognition in financial statements. The Company's management believes
that the guidance expressed in the bulletin does not affect the
Company's current revenue recognition policies.
2. SALE OF PROPERTY
On November 22, 1999, the Company sold the 237 Property for an
aggregate purchase price of $372,000, subject to customary prorations
and certain adjustments. The following represents the results of
operations for the 237 Property for the quarter and nine months ended
September 30, 1999:
<TABLE>
<CAPTION>
<S> <C> <C>
Quarter Ended Nine Months Ended
September 30, 1999 September 30, 1999
------------------ ------------------
REVENUES:
Base rental income $9,892 $27,478
Operating escalation income 1,795 8,431
Lease termination income -- 25,855
Miscellaneous income 90 416
-------- --------
Total revenues 11,777 62,180
-------- --------
OPERATING EXPENSES:
Real estate taxes 2,768 7,929
Operating and maintenance 726 2,109
Utilities 259 626
Payroll 430 1,278
Management fees 238 550
General and administrative expenses
and professional fees 65 297
Depreciation and amortization 334 3,171
-------- --------
Total operating expenses 4,820 15,960
-------- -------
OTHER ITEMS:
Interest income 459 845
Interest expense (3,556) (10,610)
--------- ---------
Total other items (3,097) (9,765)
--------- ---------
NET INCOME $3,860 $36,455
========= =========
</TABLE>
5
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3. MORTGAGE NOTES
Mortgage notes consist of a $425,000 mortgage loan (the "1290 Mortgage
Loan") secured by the 1290 Property. Interest on the 1290 Mortgage Loan
is based on LIBOR plus 2% and requires interest only payments through
maturity on January 2, 2003. The 1290 Property Owning Partnership has a
one time right (subject to achieving certain conditions, including a
debt service coverage ratio, loan to value ratio and payment of a 25
basis point extension fee), at its option, to extend the maturity for a
period of twelve months. Between July 1, 2000 and December 31, 2000,
the 1290 Mortgage Loan can be repaid together with a prepayment premium
equal to one-half of one percent of the outstanding principal balance.
The 1290 Mortgage Loan may be repaid in whole after December 31, 2000,
without penalty or premium. The costs associated with securing the 1290
Mortgage Loan of approximately $12,916 are included in deferred
financing costs and are amortized over the term of the 1290 Mortgage
Loan.
The 1290 Property Owning Partnership and Morgan Stanley Derivative
Products, Inc. entered into an Interest Rate Exchange Agreement
effective December 13, 1999 (the "1290 Swap Agreement"). The 1290 Swap
Agreement provides that the 1290 Property Owning Partnership will pay
interest at an effective rate of 8.4995% per annum of the notional
amount of $425,000. Management believes that the risk of incurring
losses related to the credit risk is remote and that any losses would
be immaterial.
Management believes that the fair value of the 1290 Swap Agreement
generally offsets gains or losses on the 1290 Mortgage Loan being
hedged and changes the nature of such underlying financial instruments.
Because the maturity date of the 1290 Mortgage Loan and the termination
date of the 1290 Swap Agreement are identical, the fair value of the
1290 Swap Agreement is of limited usefulness.
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses include property operating
expenses payable, interest expense payable and funded reserves held by
the Company for utility tax claims and tenant claims against real
estate tax proceeds.
5. SUBORDINATED MINORITY INTEREST
The Subordinated Minority Interest represents the 99% limited
partnership interest of JMB/NYC Office Building Associates, L.P.
("JMB/NYC") in the Upper Tier LP which owns a subordinated 4.95%
limited partnership interest in the 1290 Property Owning Partnership
(the "Subordinated Minority Interest"). Pursuant to the 1290 Property
Owning Partnership's Amended and Restated Agreement of Limited
Partnership (the "1290 Partnership Agreement"), (A) if JMB/NYC
exercises its right (the "JMB Put Right"), which right is exercisable
commencing in September 2001, to cause the Company to acquire the
interest held by Upper Tier LP in the 1290 Property Owning Partnership
(the "Upper Tier LP Interest"), the Company would be required to pay to
JMB/NYC the greater of (x) $1,000 and (y) the Put Amount (as defined
below), (B) if the Company exercises its right (the "Company Call
Right"), which right is exercisable commencing in March 2001, to
acquire the Upper Tier LP Interest, the Company would be required to
pay to JMB/NYC the greater of (x) $1,400 and (y) the Call Amount (as
defined below), and (C) the Company may sell the 1290 Property, its
partnership interest in the 1290 Property Owning Partnership or greater
than a 51% interest in the Company itself at any time after January 1,
2000; provided that in connection with such sale the Company pays
$4,500 to JMB/NYC. "Put Amount" means the price based upon a multiple
of the net operating income of the 1290 Property for the immediately
preceding calendar year reduced by the debt encumbering the 1290
Property and any priority distributions to which the Company is
entitled as a partner of the 1290 Property Owning Partnership. "Call
Amount" means the price based upon a multiple of twice the net
operating income of the 1290 Property for the period of January 1, 2000
through June 30, 2000, reduced by the debt encumbering the 1290
Property and any priority distributions to which the Company is
entitled as a partner of the 1290 Property Owning Partnership.
The Company does not intend to sell the 1290 Property prior to March
2001 and intends to exercise the Company Call Right in March 2001. If
the Company exercises the Company Call Right in March 2001, the Company
expects that it would be required to pay $1,400 to JMB/NYC.
6
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Management believes, however, that no economic obligation exists to
JMB/NYC as of September 30, 2000 and that JMB/NYC would not be entitled
to receive any distributions in excess of amounts under the Put Right
and Call Right in respect of the Subordinated Minority Interest.
Management believes that, upon exercise by the Company of the Company
Call Right, JMB/NYC would only be entitled to receive $1,400 in respect
of the Subordinated Minority Interest. Pursuant to the 1290 Partnership
Agreement, JMB/NYC would be entitled to distributions only after the
Company has received certain priority distributions as more fully
described below.
The 1290 Partnership Agreement provides that the aggregate Available
Cash (as defined in the 1290 Partnership Agreement) will be distributed
no less frequently than quarterly to the partners of the 1290 Property
Owning Partnership as follows:
(i) 100% to the Company, until it has received, aggregate
distributions on or after November 22, 1999 (the "Closing
Date") equal to an amount which, when added to all prior
distributions to the Company on or after the Closing Date
pursuant to this clause and clauses (i) and (iv) of the
succeeding paragraph, aggregate distributions equal to a
cumulative compounded return, of 12% per annum on the sum of
(x) approximately $274,375 and (y) any additional capital
contributions made by the Company, as general partner, to the
1290 Property Owning Partnership (the amounts in (x) and (y),
as reduced by distributions in respect of such amounts
referred to herein as the "Adjusted GP Contribution");
(ii) 100% to the Company, until it has received aggregate
distributions on or after the Closing Date pursuant to this
clause equal to an amount which, when added to all prior
distributions to the Company on or after the Closing Date
pursuant to clauses (ii) and (v) below, equals the Adjusted GP
Contribution; and
(iii) the balance, 94.05% to the Company, 1% to 1290 GP Corp.
and 4.95% to the Upper Tier LP.
The 1290 Partnership Agreement provides that distributions from the
1290 Property Owning Partnership after the Closing Date related to any
sale, refinancing, condemnation or insurance recovery of the 1290
Property or any loan made to the 1290 Property Owning Partnership will
be distributed by the 1290 Property Owning Partnership to its partners
as follows:
(i) 100% to the Company, until it has received, together with
all prior distributions pursuant to this clause (i) and clause
(i) of the immediately preceding paragraph, aggregate
distributions equal to the product of (x) 0.5 and (y) a 12%
per annum cumulative compounded return on the Adjusted GP
Contribution;
(ii) 100% to the Company, until it has received, together with
all prior distributions pursuant to this clause (ii) and
clause (ii) of the immediately preceding paragraph, aggregate
distributions equal to approximately $107,172;
(iii) of the next $500, 90% (i.e., $450) to the Upper Tier LP
and 10% to the Company;
(iv) 100% to the Company, until it has received, together with
all prior distributions pursuant to this clause (iv), clause
(i) of this paragraph and clause (i) of the immediately
preceding paragraph, a 12% per annum cumulative compounded
return on the Adjusted GP Contribution;
(v) 100% to the Company, until it has received, together with
all prior distributions pursuant to this clause (v), clause
(ii) of this paragraph and clause (ii) of the immediately
preceding paragraph, aggregate distributions equal to the
Adjusted GP Contribution; and
(vi) the balance 94.05% to the Company, 1% to 1290 GP Corp.
and 4.95% to the Upper Tier LP.
7
<PAGE>
As a result of the distribution of the net proceeds from the sale of
the 237 Property and the refinancing of the 1290 Property, $446 was
paid to JMB/NYC in 1999.
6. STOCKHOLDERS' EQUITY
The Company has the authority to issue 50,000,000 shares of common
stock, par value $10 per share (the "Common Stock"), and 10,000,000
shares of Preferred Stock, par value $10 per share. As of September 30,
2000, of the 12,997,646 shares issued and outstanding, 8,061,586
represents shares of Class A Common Stock and 4,936,060 represent
shares of Class B Common Stock. The Class A Common Stock and the Class
B Common Stock have identical rights and privileges, and are treated as
a single class, with respect to all matters (other than certain voting
rights) including, without limitation, the payment of dividends and
distributions upon liquidation.
7. STOCK PLAN AND REGISTRATION RIGHTS
The Board of Directors of the Company adopted a Directors' Stock Plan
effective October 10, 1996 and amended the Stock Plan on December 13,
1999. The purpose of the Stock Plan is to attract and retain qualified
persons as Directors. Pursuant to the Stock Plan, the Board of
Directors of the Company has the authority to issue to members of the
Company's Board of Directors Common Stock and options to purchase, in
the aggregate, 100,000 shares of Class A Common Stock. On the Effective
Date, the initial members of the Company's Board of Directors were
granted options entitling each Director to purchase an aggregate of
3,000 shares of Common Stock at an exercise price of $25 per share.
On December 13, 1999, the Board of Directors decreased the exercise
price of all outstanding options by $15.00 per share in consideration
of a special distribution to stockholders of $15.00 per share that was
made on that date. After the adjustment of the options' exercise
prices, every Director but one exercised his options on December 23,
1999. In March 1998, John R.S. Jacobsson was granted options entitling
him to purchase an aggregate of 3,000 shares of Common Stock at an
exercise price of $42.50 per share. Such options were issued in July
1998, and became fully exercisable on October 10, 1999. The exercise
price of Mr. Jacobsson's options was adjusted to $27.50 per share on
December 13, 1999 and to $12.50 per share on December 28, 1999 in
consideration of two special distributions to stockholders of $15.00
per share that were made on such dates.
The Company has entered into a Registration Rights Agreement between
the Company and the holders of Common Stock. The Registration Rights
Agreement permits certain of the Company's stockholders to demand,
subject to certain conditions, that the Company register their Common
Stock for sale and provides all of the Company's stockholders with the
right to participate proportionally in any public offering of the
Company's securities.
8. RELATED PARTY TRANSACTIONS
Sale of 237 Property/Refinancing of 1290 Property - John R. Klopp, a
director, officer and stockholder of the Company, is employed by
Capital Trust, the parent company of Victor Capital Group L.P. ("VCG").
VCG acted as one of the Company's representatives in connection with
the sale of the 237 Property in November 1999. Pursuant to the terms of
the retention agreement between VCG and the Company, VCG was paid a fee
equal to $930 (0.25% of the total transaction value). In addition, VCG
was paid approximately $1,594 by the Company in December 1999 as a
finder's fee in connection with the refinancing of the debt pertaining
to the 1290 Property.
Asset Management - The Company has entered into an Asset Management
Agreement with a company ("Asset Manager") that is directly affiliated
with two of Metropolis' shareholders. One of these shareholders is also
a Director and Officer of the Company. The Asset Manager provides asset
advisory, consultation and management services for the Company. Fees
for such services are payable at a rate of $25 per month, in arrears.
The Asset Management Agreement also provides for reimbursement of costs
and expenses for contractors and professional fees, as incurred. Asset
management fees incurred for the three and nine months ended September
30, 2000 aggregated approximately $75 and $225, respectively. Asset
8
<PAGE>
management fees incurred for the three and nine months ended September
30, 1999 aggregated approximately $75 and $225, respectively.
Property Management - The Company has entered into a Management and
Leasing Agreement with a company ("Property Manager/Leasing Agent")
that is an affiliate of a shareholder. The Property Manager/Leasing
Agent manages and operates the 1290 Property and provides all
supervisory, management and leasing services. Until the sale of the 237
Property in November 1999, the Property Manager/Leasing Agent performed
similar services with respect to the 237 Property. The Management and
Leasing Agreement provides for a fee of 1.5% of gross revenues, payable
monthly, and reimbursement for overhead and all reasonable
out-of-pocket-expenses incurred. The Management and Leasing Agreement
also provides for leasing commissions to be calculated on a sliding
scale percentage basis of a lease's base rent. Fees incurred under the
Management and Leasing Agreement for the three and nine months ended
September 30, 2000 aggregated approximately $819 and $1,814,
respectively. Fees incurred for the three and nine months ended
September 30, 1999 aggregated approximately $1,544 and $3,110,
respectively.
An affiliate of the Property Manager/Leasing Agent provides cleaning
services for the 1290 Property. Until the sale of the 237 Property in
November 1999, an affiliate of the Property Manger/Leasing Agent
performed similar services with respect to the 237 Property. Fees
incurred for cleaning services for the three and nine months ended
September 30, 2000 totaled $799 and $2,398, respectively. Fees incurred
for the three and nine months ended September 30, 1999 aggregated
approximately $1,082 and $3,280, respectively.
REIT Management - The Company has entered into a REIT Management
Agreement with the Property Manager/Leasing Agent ("REIT Manager"). The
REIT Manager performs certain accounting, administrative and monitoring
services. The REIT Management Agreement provides for compensation to
the REIT Manager of a monthly fee and reimbursement of documented
out-of-pocket expenses. Fees incurred under the REIT Management
Agreement for the three and nine months ended September 30, 2000
aggregated approximately $31 and $94, respectively. Fees incurred for
the three and nine months ended September 30, 1999 aggregated
approximately $31 and $94, respectively.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, escrow deposits,
tenant security deposits, tax refunds receivable, and accounts
receivable are a reasonable estimate of their fair value due to their
short-term nature. The Company believes the fair value of the 1290 Swap
Agreement generally offsets gains or losses on the 1290 Mortgage Loan
being hedged and changes the nature of such underlying financial
instruments. Because the maturity date of the 1290 Mortgage Loan and
the termination date of the 1290 Swap agreement are identical, the fair
value of the 1290 Swap Agreement is of limited usefulness.
Management believes the fair market value of the 1290 Mortgage Loan
approximates the carrying value at September 30, 2000.
The fair value estimates presented herein are based on pertinent
information available to management as of September 30, 2000.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (In thousands, except share information)
General
The discussion below relates primarily to the financial condition and
results of operations of Metropolis Realty Trust, Inc. (the "Company") for the
third quarter of 2000. Stockholders are encouraged to review the financial
statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations for the year ended December 31, 1999 contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999 for a
more complete understanding of the Company's financial condition and results of
operations.
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Overview
The Company was formed on May 13, 1996 and commenced operations on
October 10, 1996, upon acquisition of the 237 Property and the 1290 Property,
pursuant to the Plan. The Company is a Maryland corporation that qualifies as a
REIT for tax purposes.
Prior to November 22, 1999, the Company owned and operated the 237
Property and the 1290 Property. On November 22, 1999, the Company sold its
interests in the 237 Property. Consequently, the Company's principal business
objective is to operate the 1290 Property in a manner that will maximize the
1290 Property's revenues and value and in turn maximize funds from operations
and stockholder value.
The 1290 Property is a 43-story Class A commercial office building with
approximately 2.0 million rentable square feet of space. The building is
centrally located in midtown Manhattan and is connected to the famed
"Rockefeller Center" complex via an underground passageway. The 1290 Property
serves as the corporate headquarters for The Equitable Life Assurance Society of
the United States, and is currently 99% leased. Over the next five years,
approximately 22% of the total rentable area of the building is subject to
expiring leases.
The Company has retained Tishman Speyer Properties, L.P. to serve as
the property manager and leasing agent, which is responsible for managing the
daily operations of the 1290 Property, and 970 Management, LLC, an affiliate of
VCG, to serve as the asset manager. The Company has also entered into a REIT
Management Agreement with Tishman Speyer Properties, L.P. to perform certain
accounting, administrative and REIT compliance monitoring services.
As of September 30, 2000, 12,997,646 shares of common stock were issued
and outstanding. The Common Stock of the Company is not listed on any exchange,
and the Company does not intend to list the Common Stock on any exchange in the
near term.
The assets and results of operations of the Properties are reported in
the consolidated financial statements of the Company using the consolidation
method of accounting.
Results of Operations
Quarters Ended September 30, 2000 and 1999
------------------------------------------
Base rental income decreased by approximately $9,690 for the quarter
ended September 30, 2000 as compared to the same period in the prior year. This
decrease of 31.2% is primarily attributable to the sale of the 237 Property.
Miscellaneous income increased by $198 for the quarter ended September
30, 2000 as compared to the same period in the prior year. This increase is
primarily due to an increase in revenue from sub-metered electric income at the
1290 Property, offset by a decrease in miscellaneous income attributable to the
sale of the 237 Property.
Operating expenses for the quarter ended September 30, 2000 were
$12,672, a decrease of 32.6% from the quarter ended September 30, 1999. This
decrease is primarily attributable to the sale of the 237 Property. This
decrease is partially offset by an increase in depreciation and amortization
related to additions to building and tenant improvements in 1999 and 2000, and
an increase in utility expense at the 1290 Property. Operating expenses as a
percentage of base rental income and escalation income increased to 58.6% for
the quarter ended September 30, 2000 from 57.2% for the quarter ended September
30, 1999.
Interest expense for the quarter ended September 30, 2000 increased
17.6% from the quarter ended September 30, 1999. This increase is due to a
higher level of mortgage indebtedness, a higher interest rate on such
indebtedness and an increase in the amortization of deferred financing costs
associated with such indebtedness.
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Nine Months Ended September 30, 2000 and 1999
---------------------------------------------
Base rental income decreased by $22,134 for the nine months ended
September 30, 2000 as compared to the same period in the prior year. This
decrease is primarily attributable to the sale of the 237 Property, offset by an
increase due to higher base rents at the 1290 Property associated with new
leases for approximately 193,000 square feet entered into subsequent to
September 30, 1999.
No lease termination income was generated for the nine months ended
September 30, 2000. For the nine months ended September 30, 1999 the Company
recognized $25,855 from the termination of the lease with Swiss Re, a tenant of
the 237 Property. The termination of the lease resulted in a payment by Swiss Re
to the Company of a one-time lease termination fee of $25,855.
Miscellaneous income decreased $1,610 for the nine months ended
September 30, 2000 as compared to the same period in the prior year. This
decrease is primarily due to the reversal of a utility tax claim reserve in June
1999 in the amount of $2,900 which resulted in an increase in miscellaneous
income for that period, offset by $1,000 that the Company received in June 2000
from a tenant at the 1290 Property in connection with the occupancy of space
that the tenant was previously sub-leasing and now leases directly.
Operating expenses for the nine months ended September 30, 2000 were
$36,007, a decrease of 29.4% from the nine months ended September 30, 1999. This
decrease is primarily due to the sale of the 237 Property. This decrease is
partially offset by an increase in depreciation and amortization related to
additions to building and tenant improvements in 1999 and 2000, and an increase
in utility expense at the 1290 Property. Operating expenses as a percentage of
base rental income and escalation income increased to 54.6% for the nine months
ended September 30, 2000 from 53.2% for the nine months ended September 30,
1999.
Interest expense for the nine months ended September 30, 2000 increased
16.6% from the nine months ended September 30, 1999. This increase is due to a
higher level of mortgage indebtedness, a higher interest rate on such
indebtedness and an increase in the amortization of deferred financing costs
associated with such indebtedness.
Liquidity and Capital Resources
During the nine months ended September 30, 2000, cash flow from
operations totaled $15,049. The Company used this cash flow from operations to
fund building and tenant improvements of approximately $2,630 and leasing costs
of approximately $2,444.
At September 30, 2000, the Company had unrestricted cash on hand of
approximately $15,091 of which $1,950 was used to pay a dividend on October 13,
2000 to holders to record of the Company's Common Stock on September 29, 2000.
During the fourth quarter of 1999, the Company sold the 237 Property
and refinanced the 1290 Property with the 1290 Mortgage Loan. Interest on the
1290 Mortgage Loan is based on LIBOR plus 2% and requires interest only payments
through maturity on January 2, 2003. The 1290 Property Owning Partnership has a
one time right at its option to extend the maturity for a period of 12 months
(subject to achieving certain conditions, including a debt service coverage
ratio, loan to value ratio and the payment of a 25 basis point extension fee).
Between July 1, 2000 and December 31, 2000, the 1290 Mortgage Loan can be repaid
together with a prepayment premium equal to one-half of one percent (.5%) of the
outstanding principal balance. The 1290 Mortgage Loan may be repaid in whole
after December 31, 2000, without penalty or premium. The costs associated with
securing the 1290 Mortgage Loan of approximately $12,916 are included in
deferred financing costs and are amortized over the term of the 1290 Mortgage
Loan.
Other
This report contains certain "forward-looking statements" within the
protection of the statutory safe-harbors of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. All statements, other than statements of historical facts, which
address activities, events or developments that the Company expects or
anticipates will or may occur in the future, including such statements using the
words "believes," "anticipates," "expects" and similar expressions, are
forward-looking statements. Such statements are subject to certain risks and
11
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uncertainties which could cause actual results to differ materially from those
projected or suggested in such forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. The Company undertakes no obligation to publicly
revise these forward-looking statements to reflect events or circumstances
occurring after the date hereof or to reflect the occurrence of unanticipated
events.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The 1290 Property Owning Partnership and Morgan Stanley Derivative Products,
Inc. entered into an Interest Rate Exchange Agreement effective December 13,
1999. The 1290 Swap Agreement provides that the 1290 Property Owning Partnership
will pay interest at an effective rate of 8.4995% per annum on the notional
amount of $425,000. Management believes that the risk of incurring losses
related to the credit risk is remote and that any losses would be immaterial.
Management believes the fair value of the 1290 Swap Agreement generally offsets
gains or losses on the 1290 Mortgage Loan being hedged and changes the nature of
such underlying financial instruments. Because the maturity date of the 1290
Mortgage Loan and the termination date of the 1290 Swap Agreement are identical,
the fair value of the 1290 Swap Agreement is of limited usefulness.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings, other than
ordinary routine litigation incidental to the business of the Company, against
or involving the Company, the Partnerships or the Properties.
Retention of Jurisdiction by Bankruptcy Court
In July 1997, the United States Bankruptcy Court for the
Southern District of New York entered a final decree closing the reorganization
cases of the Predecessors.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters To a Vote of Security Holders
No matters have been submitted to a vote of the Company's
security holders since November 19, 1999.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
27.1 Financial Data Schedule as of and for the 9 months ended
September 30, 2000.
(b) Reports on Form 8-K.
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
METROPOLIS REALTY TRUST, INC.
By: /s/ Lee S. Neibart
---------------------
Name: Lee S. Neibart
Title: President
By: /s/ Stuart Koenig
---------------------
Name: Stuart Koenig
Title: Vice President
Dated: November 14, 2000
S-1
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EXHIBIT INDEX
Exhibit No. Description
----------- -----------
27.1 Financial Data Schedule as of and for the nine months
ended September 30, 2000
